Online music swaps revive, legitimize with price

Above the Norm: Tech Talk

The unthinkable has just been thought — legitimate digital distribution of music tracks and albums has begun, turning computers across the world into legal personal jukeboxes. A barrage of new music services have initiated the beginnings of a 180-degree turn in regards to lawful purchasing and downloading of digital media.

Since Napster's groundbreaking file-sharing platform, launched in June 1999, the file-sharing industry has fallen victim to intense legal scrutiny. Napster failed to survive the onslaught of legal attacks and shut down in 2001 due to its centralized system architecture. Newer peer-to-peer clients such as Kazaa, Morpheus and Gnutella found a way around the illegality of file sharing by providing a network for other computers to utilize without the attack point of a centralized system — all old news.

Entrepreneurs and innovators alike — hint: Apple CEO Steve Jobs — since have realized the potential business value in online distribution of digital media. Apple's iTunes grand opening in September 2003 birthed the early stages of a legitimate file-sharing world. Months later, a bullied Napster, whose ownership had exchanged hands numerous times since it shut its doors in 2001, opened its downloadable music shop, advertising the widest selection of all online music merchants, with tracks at 99 cents each and full albums for just under $10.

Wal-Mart, Rhapsody.com, EMusic.com and a slew of others all have opened their version of Jobs' iTunes. Each service offers a slight variation from the next.

Wal-Mart does what Wal-Mart does — sells cheaper than everyone else, starting at 88 cents per track as opposed to everyone else's upper 90-cent tracks. Rhapsody.com, a subsidiary of Real, allows users to listen to any of the tracks they have rights to for a monthly fee, and then it is 79 cents per track to burn to a compact disc.

EMusic.com is a subscription-only service, while most others are subscription or individual track purchases. EMusic does have one leg up on the competition. It distributes pure, open MP3s, allowing for zero restriction on what you can do with the songs — transfer or burn as much as you would like.

Other services offer proprietary formats with a strapped-down license model, limiting CD burns and transfers. It appears that they all have followed suit to Jobs, and legitimate song sales appear to be working as a successful U.S. business model. The future of this success still is a bit hazy, and presumably as nature takes its toll on the industry, time will tell.

But, Apple is no stranger to failure or of getting kicked out of its own party, for that matter. The past doesn't lie about its disastrous industry blunder of not licensing its, at the time, massively superior operating system to third-party vendors. With a potential to monopolize the entire industry, Apple simply held open the door for Bill Gates and his now 97 percent market share in the personal-computing world. Mistakes of the past should not be made again, especially those as economically catastrophic and gigantic as discussed above.

Presently though, Jobs and his hardware/software combination, reminiscent Bonnie and Clyde, are on top of the music-services world — reaching a million in online track sales in its first week. Jobs, his iPod (don't forget the newly released iPod mini) and iTunes are a hardware/software combination reminiscent of Frank Sinatra and Dean Martin. Apple's music store simply is an added incentive for users to utilize the synchronization of hardware and software that Apple offers — an extremely solid combination.

A December 2003 time.com article about Jobs and his latest duo quoted Jobs as he said, "The dirty little secret of all this is there's no way to make money on these stores." For every 99 cents Apple gets from your credit card, 65 cents goes straight to the music label. Another quarter or so gets eaten up by distribution costs. At most, Jobs is left with a dime per track, so even $500 million in annual sales would add up to a paltry $50-million profit. Why even bother? "Because we're selling iPods," Jobs said in the article.

The Recording Industry Association of America continues to pressure the file-sharing world. Just this past week, another 538 lawsuits were filed against potential copyright violators. This last round of legal action taken by the RIAA is the most intense yet. Lawsuits seem to have little or no effect on the file-sharing universe to date, but perhaps this will begin to turn some heads.

What's on the horizon for the file-sharing industry? Expect to see movies sooner than you think.

Movielink.com and CinemaNow.com are offering movies that customers can pay to download. Movies are about 250 times the size of your typical MP3, but as broadband Internet connections are becoming increasingly readily available, trips to Blockbuster soon will become less and less frequent.